Section 42 of the Companies Act, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 are substantive provisions for regulating private placements by Indian companies. These provisions are, of course, in addition to applicable regulations prescribed by the Securities and Exchange Board of India (“SEBI”) for listed companies. Recently, both Section 42 and Rule 14 have undergone amendments by way of the Companies (Amendment) Act, 2017 and the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2018, respectively (the “Recent Amendments”). Continue Reading Recent Amendments to the Private Placement Guidelines – Revamp or Cosmetic?
Partner in the Capital Markets Practice at the Mumbai Office of Cyril Amarchand Mangaldas. Abhinav focuses on a variety of capital markets transactions, including initial public offerings, follow-on offerings, rights issues, QIPs and preferential issues by listed companies. He can be reached at firstname.lastname@example.org
Over the years, companies have used employee stock option schemes (ESOP Schemes) as an effective method to align employee interests with shareholders, reward their efforts, increase their loyalty towards the company and motivate employees to perform better.
An initial public offering (IPO) and consequent listing of equity shares is one of the critical ways in which employees seek value appreciation in stock options and equity shares held by them. Accordingly, unlisted companies typically align timing of exercise of options under ESOP Schemes with their plans to undertake an IPO.
The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended (SEBI ICDR Regulations), which regulates IPOs, provides exceptions for ESOPs from certain eligibility conditions to be fulfilled by the issuer undertaking the IPO as well as transfer restrictions on equity shares applicable after the completion of the IPO.
However, issuers have faced challenges in the past with respect to eligibility conditions if the options have remained outstanding with individuals who have ceased to be an employee of the issuer.
Further, issuers are being increasingly questioned by such former employees, who continue to hold shares in the issuer but are not offered lock-in exemptions available to existing employees. Additional basis to these concerns is that former employees are treated beneficially under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (ESOP Regulations) and the Companies Act, 2013 and similar benefits have not been recognised under the SEBI ICDR Regulations.